Former US defence secretary Donald Rumsfeld’s famous “unknown unknowns” perfectly describes the current situation with regard to the basic state pension. Last year, I was privileged to be invited to Money Marketing’s 30th anniversary dinner, in which long-standing contributors were asked to speculate on what would dominate debate in the next 30 years.
During that dinner I had the temerity to criticise the complexity of the state pension system. Despite its apparent simplification by moving to a single unified rate for pensioners, I argued the system left millions baffled as to the actual amount they were entitled to – while also paying a significant number far less than the promised headline rate of £155 a week.
To my surprise, I was rebuked for saying this by SimplyBiz group chairman Ken Davy who informed diners that he had been one of the advisers to the Conservative Party on this topic and that the system was perfectly easy to understand.
Last week, my fellow Money Marketing columnist Paul Lewis indirectly eviscerated Davy’s confident assumption, wittily describing it as “the flat-rate pension that is paid at more than 20,000 different rates”.
Paul continued: “You need 35 years’ worth of National Insurance contributions to get the full flat-rate new state pension of £155.65, but even if you have paid that much you may get less than the full state pension. More than 1.7 million people reaching state pension age in the next 10 years – about one in three – will be affected.”
Many of them will be people who, without realising it, were contracted out of Serps through their occupational pension schemes. Others did so because they were advised to contract out and place their NI rebates into a personal pension.
Paul’s comments reflected a report by the National Audit Office last week, which stated the Department of Work and Pensions’ attempts to improve understanding of the pension system had failed – despite a radical overhaul of the system.
Even more significantly, the NAO noted, the DWP was failing in respect of a key driver for the reforms to the system: “One of the department’s objectives of state pension reforms was to prompt people to take action and plan for their retirement from a younger age,” the report said. “But there is not yet any evidence that the new state pension has encouraged people to save more for their retirement.”
The Government’s growing pains
I also suspect an element of deliberate political calculation: by continuing to link the amount of state pension on a set of arcane computations that no one understands, the Government is atomising the pensioner population, preventing effective comparisons based on a common expectation of equal pensions for all.
A similar salami-slicing tactic is being used against so-called Waspis, hundreds of thousands of women born between April 1953 and April 1956 who are affected by the accelerated raising of their retirement ages in 2011.
Which is how I also view demands to scrap the triple lock on state pensions. For the past few months there has been growing clamour for this simple measure, which had barely begun to address the problem of low incomes for pensioners, to be scrapped.
Last week it was the turn of MPs on the Work and Pensions committee to argue that continuing with the triple lock is “unsustainable” and “unfair” on younger families.
Leave aside the irony of a hugely privileged occupational group whose own pensions are paid at 50 per cent of their final salary after a mere 20 years in the job telling millions of pensioners that their own pathetic future incomes should be cut in the interests of “fairness.”
Pensioners are taking the rap for a failure of both Labour and Tory governments to provide low-cost social housing and ensure decently-paid employment for millions of citizens.
Nevertheless I suspect that MPs are pushing at an open door. Over the past few months it is evident there has been a political softening-up process in respect of the triple lock, led by Ros Altmann and supported by former Work and Pensions Secretary Iain Duncan Smith. The guarantee to keep it in place will only last until 2020.
Donald Rumsfeld’s phrase about “unknown unknowns” left out an important element: what we prefer to remain unknown and swept under the carpet. In this instance, it is the fact that continuing confusion over the state pension system and the abandonment of meagre measures to address many decades of unfairness will neither protect pensioners against poverty, genuinely address so-called “intergenerational unfairness” or make it more likely that people will save for their retirement.
Nic Cicutti can be contacted at email@example.com